The 4Ps to Consider When Proposing a P3 Relationship

The 4 Ps of P3s

Don’t forget to think about people, pricing, property, and psychology when weighing your P3 options.

The use of public-private partnerships (P3s) by colleges and universities has grown in popularity over the years. Originally, P3s were leveraged as a means to obtain new campus facilities and to support athletic programs. In recent years, P3s have increasingly been created to outsource a campus function that generates revenue to a for-profit company. The P3 trend started with dining services and has lately become more popular with campus housing and parking.

This specialized form of supporting an institution’s facilities needs comes with its own unique set of advantages and disadvantages that should be reviewed when considering an arrangement. For business officers, there are four “P’s” to account for when discussing a potential P3 with executives and directors.

People: If the resident halls are “outsourced,” how about the employees who maintain them? On smaller campuses, 30-40% of the workforce might be devoted to cleaning and repairing dorms. Many of those will have responsibilities for res halls and other buildings on campus. Also, custodial staff tend to be some of the longest serving employees on the campus, so a mass migration to the new owners could cause a significant loss of institutional memory. Anytime you’re considering a P3 agreement to support campus housing, you need to consider how that will play out in terms of the people who maintain those and other buildings. (For more on staffing for maintenance and custodial departments, read through our 2015 State of Facilities report).

Pricing: Campus housing provides a stream of revenue for the institution. When you sell that stream of revenue to a private contractor, your forecasts need to recognize both the housing revenue stream lost, the maintenance costs avoided, and whatever income is generated by the sale or lease of the dorms. In addition, an institution that joins into a P3 needs to consider the agreement a strategic decision that needs to work for the school decades into the future. The partnership can be structured in a variety of ways in order to meet the profit needs of the private business and the ongoing revenue needs of the university. These deals sometimes fall through because schools focus too much on money up front and not enough on long-term income security.

Property: In most cases, the beds in question will be located in buildings on campus. Whatever form the agreement takes, the institution needs to reserve some rights to approve renovations or new construction to confirm that projects are aligned with campus goals and aesthetics. If the agreement amounts to a long-term lease, it should be clear about the condition of the property when it reverts to the school. If the agreement involves the private entity taking over existing buildings on campus, it should be clear about what maintenance backlog exists for those buildings and who is responsible for resolving it. Other maintenance and infrastructure responsibilities need to be spelled out clearly as well, such as the point at which utility repairs shift from a campus concern to the housing provider’s purview.

Psychology: At this point, we’re a little bit past the numbers discussion. However, it’s important to remember that as this practice shifts beyond athletic programs and dining services, it moves much closer to the heart of the college experience. If you can make the numbers work on a dining services P3, you’re not likely to hear an outcry from alumni who feel like dining hall meatloaf was a core part of their college experience. The same is not true when it comes to the dorms that students call home while on campus. When you propose an agreement that basically sells the revenue stream from campus housing to an outside entity, it’s not unusual to have people respond that the student residents’ experience is a key part of the university experience and it should remain an institutional responsibility.

P3s can definitely provide a valuable source of off-balance sheet financing for much needed campus improvements. They aren’t for every institution, but it’s worth considering whether they may be right for yours.

Tell us about your thoughts on and experience with P3s in the comments below.

 

 

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